Financial risks present increasing challenges for corporate treasurers, with 58.8% of the treasurers who responded to a recent survey by consultancy TreaSolution saying financial risk management has become more difficult over the last year, up from the 44.9% who said that in 2011.
The heightened concern probably reflects a range of issues, including the European debt crisis and the prospect of new regulations regarding derivatives, says Daniel Carmody, managing director of Chicago-based TreaSolution.
“If you’re an international company active in Europe, obviously the risk in Europe is something you need to take into consideration,” Carmody says. “Regulation-wise, that’s going to be a concern, and the ambiguity that’s associated with that will be a concern. It’s just the overall environment for financial risk management becoming more difficult for practitioners.”
In spite of the threat that Europe’s debt crisis poses to the continent’s common currency, just 60.7% of treasurers say their organizations currently hedge foreign currency risk, down from 70.4% in 2011. Carmody notes that companies that only do business domestically have no need to hedge FX risk.
Other areas of concern include insurance risk management, with 44.4% of the 56 treasurers surveyed saying it has become more difficult over the last year. On the other hand, 22.5% say debt management became easier over the last year, vs. just 18.4% who view it as more difficult.
The survey suggests that corporate treasuries continue to reduce the number of their banking relationships and bank accounts. On average, the respondents had 15.4 banking relationships in 2012, down from 23.5 in 2007, and 190.9 bank accounts, down from 245.9.
“Organizations are concentrating their efforts with strategic banking partners,” says Carmody, and links that trend to concerns about financial risk. “They’re looking at counterparty risk and saying, ‘Exactly who should we be doing business with?’”
While 91.1% of treasurers say they monitor and analyze their bank fees, 90% of those who do so still rely on spreadsheets. “That is an area where there has been a lack of automation,” Carmody says.
And although there are frequent bank announcements these days about applications that allow finance executives to take care of business using their mobile devices, just 26.8% of treasurers say their organization would benefit from mobile banking services.
Carmody points out that a lot of treasury staffers spend most of their time in the office. “The vast majority of practitioners who are working day in and day out at their offices, they’re saying this isn’t something that will be applicable.”
For a look at the challenges that most concern corporate risk managers, see Volatility Tops List of Risks.